Tuesday, March 15, 2011

Today's "Efficient" Market

Today's market once again illustrated it "efficiency" and "lack of emotion". (yes, I'm being sarcastic.) This seemed to provide what seemed like a few opportunities.

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The portfolio has been long one lot of ANR. The stock was purchased a short time ago at $55 based on two factors: I assumed the republican victories in Washington last November would continue to make coal a key fuel for the US for a long time despite rhetoric from the administration and it seemed that the perhaps the stock was overly punished by it purchase of Massey. The current nuclear noise seems like it will only re-enforce the importance of coal and the emotion around it.

With today's low opening and ANR option volatility over 50%, I sold a $50 March puts for $.51. That provides a 5% cushion to make 1% in 4 days. Worse case, the stock goes below $50 and the portfolio will has a second lot at a cost of $49.50.

By the afternoon, the option was down to $.28, so a good start to the 1% return, but volatility in this name seems high so will be looking for ways to try to continue to capitalize on this volatility. Perhaps rolling this put forward and/or sell calls against position in the near future.

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Also in today's "efficient" market, GE opened way down...allegedly on concerns about their liability over the reactors they sold to Japan utilities 40 years ago. Common sense seemed to indicate that liability will not easily (if ever) flow back to the manufacturer vs the operator, etc. If I were cynical, I might even think that some big player might want to accumulate GE stock for their wind/infrastructure business and was broadcasting a concern about the smaller nuclear business to be able to buy a little cheaper.....What a surprise...GE bounced back about 4% from its open. I was only able to capture a little over 1% of the bounce....but 1% return in a few hours...never sucks.

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